Background: The goal of this study was to evaluate the presence of lymph node metastasis in patients with T1 differentiated thyroid cancer (DTC) and determine prognostic significance for tumor recurrence and cancer-related death. Methods: From a prospective tumor registry, we reviewed data from 551 patients with DTC who underwent total or subtotal thyroidectomy and who had primary tumor size ≤2 cm. Patients received standard radioactive iodine ablation. Results: The proportion of patients with lymph node metastasis was 45%. This percentage remained the same in a comparison of tumors from 0 to 1 cm with tumors from 1 to 2 cm. Logistic regression analyses did not identify primary tumor size as a predictor of lymph node metastasis, but did show that histologic vascular invasion and soft tissue invasion correlated with positive lymph nodes. Multifocal disease approached significance. Actuarial estimates for first recurrence displayed a significant difference in patients who had positive cervical lymph nodes versus negative nodes: 56% versus 71% disease-free at 20 years. There was no difference in cancer-related death. Conclusions: In T1 DTC, lymph node metastasis does not correlate with tumor size but does correlate with vascular/soft tissue invasion. Patients with positive lymph nodes have a higher recurrence risk, but no significant increase in death.